How will data centers pay for power?

Right now, connecting a data center to the grid works like Texas hog season: no defined season, no bag limits, first-come-first-served, file as many interconnection requests as you want. Travis Kavulla’s recent essay in American Affairs argues the power industry needs something closer to deer season, with defined rounds, allocation rules, and prices that reflect what grid access actually costs. The mechanism he favors is an open season, borrowed from interstate gas pipeline regulation. Rather than processing interconnection requests on a rolling basis, a grid operator would design an engineering plan reflecting realistic demand and tender it to the market in a structured bidding process. Winning bidders receive transferable property rights to grid access, comparable to water rights or spectrum licenses, rather than vague regulatory permission that reverts to the grid operator if a project fails. That difference matters for financing: a transferable property right holds residual value even if a data center company does not survive the artificial intelligence boom. Kavulla has worked as a utility regulator at the Montana Public Service Commission, on market design at California ISO, in policy at R Street, and in regulatory affairs at NRG. He now leads policy at Base Power and teaches at the University of Chicago. The conversation also covers three other mechanisms: * Data center prepayments for discrete capital costs are, in Kavulla’s framing, the most direct fix for protecting existing ratepayers. Utilities resist them because prepayments erode the rate base growth that regulated utilities depend on for earnings. * Transmission service agreements (contracts requiring upfront financial commitment before interconnecting), widely adopted across the eastern United States, rank a distant third. They base the commitment on average embedded rates rather than actual incremental cost, which overcharges some projects and undercharges others. * Bring your own generation addresses a separate problem: demand growing faster than supply pulls the clearing price higher for all customers. Data centers that source their own capacity or pay for flexibility elsewhere ease that pressure. Utah and West Virginia are among the first states opening pathways for large loads to do this. On ERCOT, host Joshua Rhodes frames the gap: the batch zero process rations grid access but does not price it. Kavulla affirms the distinction and argues cost-of-service regulation has been stretched past its breaking point. How Texas resolves these issues will shape its next interconnection rules and what current ratepayers carry as load climbs. Timestamps * 00:00 - Introduction & Travis Kavulla * 01:59 - The Essay’s Core Premise * 03:45 - Open Season: From Hog Season to Deer Season * 08:07 - What Actually Gets Auctioned * 09:45 - Data Centers Fronting Capital, and Why Utilities Resist * 13:37 - Transmission Service Agreements and Their Flaw * 17:41 - Do Data Centers Raise or Lower Rates? * 22:55 - The ComEd and Dominion Problem * 25:14 - Bring Your Own Generation * 26:53 - Reforming Monopoly States: Utah and West Virginia * 30:51 - Batch Zero vs. Open Season in ERCOT * 35:43 - ERCOT’s Flexibility Tools and Speed to Power * 42:08 - Which Idea Has the Best Shot Resources People & Organizations * Joshua Rhodes (LinkedIn) * Webber Energy Group (Website - LinkedIn) * IdeaSmiths (Website - LinkedIn) * Travis Kavulla (LinkedIn) * Base Power Company (Website) * American Affairs (Author page) * Energy Capital (Website - LinkedIn - YouTube) * Texas Energy & Power (Substack) The Essay at the Center of This Episode * How Will Data Centers Pay for Power? — Travis Kavulla, American Affairs (the essay this conversation is built around) Studies, Cases & References Discussed * Factors Influencing Recent Trends in Retail Electricity Prices — the Lawrence Berkeley National Lab / Brattle study on load growth and rates, explained by a Brattle researcher (the North Dakota “headroom” finding Kavulla references) * FERC Rejects the Amazon–Talen Co-location Agreement at Susquehanna — the co-location dispute Kavulla cites * FERC Upholds the Amazon–Talen Rejection on Rehearing — the March 2026 follow-up * Kavulla Outlines His Data Center Interconnection Proposals — RTO Insider coverage summarizing the open season, prepayment, TSA, and BYOG ideas Related Energy Capital Episodes * How Texas Decides Which Data Centers to Connect — Tiffany Wu on ERCOT’s Batch Zero process * Who Pays for the New Grid with Pablo Vegas — ERCOT’s CEO on load growth and who pays * Texas Growth Is Running Into Power Grid Limits with Katie Coleman — large load interconnection and cost allocation Transcript Joshua Rhodes: Hey everyone and welcome to another episode of the Energy Capital Podcast. I’m really excited to have Travis Kavulla here to talk about an essay that he recently wrote in American Affairs, where he’s the energy editor about how data centers will pay for power. It’s a really hot topic right now, and I’m excited to dig into that and how it kind of ties in to what ERCOT is doing for data centers. Before that, if you’re in the energy nerd space like you would be if you were listening to this podcast, you probably know Travis already, but He’s got a pretty impressive background that I’m going to go ahead and go through now. So Travis went straight from Harvard to the University of Cambridge, which I found funny that you went from one Cambridge to another, I guess. I guess that was easy for the well, I guess postcard you’re going from Massachusetts to the UK, but still. Travis Kavulla: The imitator to the original. Joshua Rhodes: Yeah, fair enough. Should I call this New Cambridge? But that’s not a thing. That’s not what we call those. Anyways. After that, you spent some time in the media with National Review and some freelance work in the UK, East Africa, and the US. But then I did not go back and look to see what you wrote for National Review. But at this point it looks like you kind of pivoted into energy and in particular the regulatory space around energy, which is what we’re gonna talk about today. But you started out as a board member for the Western Electricity Coordinating Council before becoming a commissioner at the Montana Public Service Commission, then jumping over to California to work on the energy and balance market with CAISO, the California independent system operator. Then going to R Street, where you’re the director of energy and environmental policy. And then I think your longest period of time, and probably most people know you as the VP of regulatory affairs at NRG. NRG is big in Texas, and so that brought you into Texas quite a bit. And so we were very happy to have you here. Currently a lecturer at the University of Chicago and the head of policy at Base Power, also based in Texas and Austin actually, Travis Kavulla. Welcome to the Energy Capital Podcast. Travis Kavulla: Thank you for having me, Josh. Great to be here. Joshua Rhodes: Yeah, so we wanted to bring in and talk about this essay where you’re talking about of how data centers should pay for power. And really this essay, we’ll link to it in the show notes. It’s brilliant. And I think it’s getting read pretty widely, including I saw on LinkedIn from FERC Commissioner David Rosner. So that’s great. One thing I was gonna say when I was going through your list of things is that I’ve already put my money in Polymarket that one day you’ll be a FERC commissioner. So I don’t know. It’s a pretty good bet right now. Just kidding. Not not the case. But at least your work’s getting read by them, so that’s great. So and I’ll go ahead and try to lay out the premise of your essay, and you can tell me where I get this wrong. But essentially, it’s like that the US should stop treating hyperscale data centers demand as just another low class to be included inside traditional utility rate making, with a core idea that scarce grid access should be explicitly allocated and priced, and new data center loads should pay its incremental cost, and that new generation, the bring your ow… This is a public episode. If you'd like to discuss this with other subscribers or get access to bonus episodes, visit www.texasenergyandpower.com/subscribe